Wednesday, February 26, 2020

Market Action

U.S. markets were fragile to start Wednesday’s session after opening slightly higher as ongoing worries and warnings from the CDC concerning the coronavirus dominated headlines. Conflicting reports on the severity and possible outbreak here in the U.S. caused some nervousness with the blue-chips and the small-caps losing some momentum shortly after the open.

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Later in the session, a FDA official said the U.S. is on cusp of a pandemic while late breaking news indicated that 80+ people in Nassau County, New York are being monitored for possible virus exposure. Tech faded in the afternoon, along with the broader market, and the major indexes struggling in the final hour of trading before settling mostly lower.

The Russell 2000 sank 1.2% with the 2nd half low tapping 1,551. Prior and upper support from mid-November at 1,550-1,535 was challenged but held with a move below the latter signaling a further pullback towards 1,525-1,510 and late September levels.

The Dow extended its losing streak to 5-straight sessions after falling 0.4% with the intraday low reaching 26,890. Current and upper support at 27,000-26,800 was breached and failed to hold with a close below the latter signaling additional risk towards 26,600-26,400.

The S&P 500 was also off 0.4% after trading in a 74-point range with the afternoon low reaching 3,108. Near-term and upper support at 3,125-3,100 was breached and failed to hold with a close below the latter getting 3,075-3,050 in focus.

The Nasdaq bucked the trend after gaining 0.2% while testing an intraday high of 9,148. Lower resistance at 9,000-9,150 was cleared but held with a close above the latter signaling a possible retest towards 9,250-9,300 and the 50-day moving average.

Technology was the only sector that showed strength after rising 0.5%. Energy paced sector laggards after tanking another 3% while Utilities and Real Estate declined 1% and 0.9%, respectively.

Global Economy

European markets showed continued weakness after France reported its second coronavirus death and Italy reporting its 12th death while Greece confirmed its first coronavirus case.

UK's FTSE 100 added 0.4% while the Belgium20 and France’s CAC 40 edged up 0.1%. The Stoxx 600 was up less than a point. Germany's DAX 30 dipped 0.1%.

Asian markets closed lower as hundreds of new coronavirus cases were reported across the region, mostly in South Korea, spurring ongoing pandemic

fears. Meanwhile, Hong Kong unveiled a record budget deficit, pledging cash handouts of $1,200 to residents and business tax breaks to soften the blow to the recession-hit economy.

Australia’s S&P/ASX 200 tanked 2.3% and South Korea’s Kospi lost 1.3%. Japan’s Nikkei and China's Shanghai dropped 0.8% while Hong Kong's Hang Seng fell 0.7%.

U.S. Economy

MBA Mortgage Applications rebounded 1.5% last week following the prior week's -6.4% decline. A 5.7% jump in the purchase index overshadowed a -0.8% dip in refinancings. However, refis are still 151.6% higher on a year-over-year basis. Refis comprised 60.8% of loans for the week, versus 63.2% previously. The 30-year fixed rate dipped to 3.73% from 3.77%, and is up 4.65% year-over-year. The ARM 5-year slipped to 3.21% from 3.23%, and was at 3.95% a year ago.

New Home Sales for January climbed a hefty 7.9% to 764,000, much stronger than expectations for a print of 710,000, and the revised 2.3% gain to 708,000 in December. Sales increased in all four regions. The months' supply of homes fell to 5.1 from 5.5 with 324,000 homes for sale versus 323,000 in December. The median sales price increased 7.4% to $348,200 after December's -1.2% decline to $324,100, and is at a 14% year-over-year clip versus -1.7% previously.

Market Sentiment

The iShares 20+ Year Treasury Bond ETF (TLT) had its 4-session winning streak snapped following the afternoon pullback to $149.58. Current and upper support at $150-$149.50 was breached but held. A close below the latter would signal a possible near-term top with additional pullback potential towards $148.50-$148.

Lowered resistance is at $150.50-$151 followed by $151.50-$152.

Volatility Index

The S&P 500 Volatility Index ($VIX) fell for the first time in 5 sessions despite testing an afternoon high of 29.57. Near-term resistance at 30-30.50 was challenged but held with the lower high being a slightly bullish signal. However, a close above the 30.50 level could lead to a quick trip towards 32-32.50.

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Support remains is at 27.50-27 followed by 25-24.50. A close below the 22 level this week would be a slightly bullish signal to start March next week and what is historically a bullish month.

Market Analysis

The Spiders Dow Jones Industrial Average ETF (DIA) extended its losing streak to 5-straight sessions while bottoming at $268.83. Prior and upper support from late October at $269-$268.50 was breached but held on the close below the 200-day moving average. A drop below $267.50 would be an ongoing bearish development with retest towards $265.50-$265 and levels from mid-October.

Current and lowered resistance is at $270-$270.50 with additional hurdles at $272-$272.50.

RSI rebounded off oversold levels with resistance at 30 holding on the opening strength. Upper support at 25-20 held on the 2nd half weakness with the latter representing the December 2018 low.


The Spider Gold Shares (GLD) was up for the 8th time in 9 sessions with the intraday high reaching $155.28. Near-term and lower resistance at $155-$155.50 was cleared but held. A close above the latter would be a renewed bullish signal with upside potential towards $157.50-$158 with Monday’s all-time high at $158.53.

Current support is at $153-$152.50 with a close below the $152 level signaling a possible near-term peak.

RSI is in a slight uptrend with key resistance at 70 back in play. A move above this level would signal additional strength for a retest towards 75-80 with the latter representing the monthly and overbought peak. Current support is at 65-60.

All the best,

Roger Scott